Need for Estate Planning

When most people think of estate planning, very wealthy people come to mind. It is a mistaken belief that only the wealthy need an estate plan. If you don’t have an estate plan in place, your state’s probate court will decide how your estate is distributed based on the state’s order of precedence.

A typical estate plan tends to be vague. For instance, the plan may say “Distribute my assets equally to my children”. But. how do you ‘equally’ split a painting or other art work? Legacy Guide will help you avoid many estate settlement issues.

Consideration of Your Heirs

Having no plan in place puts a huge burden on your loved ones who will have to navigate the inheritance legal system. No one wants to leave an estate mess behind. A clear plan and instructions are vital.

Cost of Settlement

Trying to settle an estate with no plan can cost your loved ones’ time, money and stress. The cost to create a clear plan can be a fraction of the cost and time of settling an estate without a properly set up plan.

Related Benefits

A good estate planning process should put in place strategies not only for the settlement of your estate but also to insure your needs are met as you age. This also includes naming Medical and Financial Powers of Attorney so that if you become physically or mentally incapacitated your family will not have to go to court the get permission to help you.

If you haven’t had to help settle an estate, talk to some of your friends who have. Settling an estate with no prior planning is a confusing, thankless job. Don’t let your loved ones’ last memories of you be the agony of having to navigate through a confusing legal system with no help.  Legacy Guide is here to help.

Methods of Transfer

Let’s get through some of the basics. There are three broad ways title to assets can pass to heirs: by Contract/Title, by Trust Designation, or by Probate – either Testate (with a will in place) or Intestate (with no will).

Transfer by Contract/Title

Beneficiary Designation on and IRA or a life insurance policy is a form of transfer by contact/title. For bank and non-IRA investment accounts you can put a Payment on Death (POD) or Transfer on Death (TOD) designation on the account that specifies who receives the account once you are gone. Assets that transfer by contract designations generally are not included in your estate for probate. Contract transfers may also supersede a Will or a Trust. Some states also also allow TOD’s on real estate and motor vehicles.

Another type of transfer is through title. For instance, under a joint tenancy with rights of survivorship, when one of the owners (Tenants) passes away the surviving owner (or owners) receives the asset and the assets are not included in the Probate Estate. While transferring an asset through a joint tenancy can be a very effective way to transfer an asset, there are tax and legal issues that should be considered. Legacy Guide is designed to help ensure that you understand the basics and will help you provide estate planners with the information that will help them address the title issues.

States in Blue Allow TOD on Real Estate

States in Blue Allow TOD on Motor Vehicles

Transfer by Trust Designation

Living Trust can be a very effective method of transferring assets from your estate to your heirs.

If all of your assets that do not pass by contract are titled in the name of the trust, these assets are not subject to probate, which is always a good result. Transfers are handled by your designated successor trustee, and there is no mandatory court supervision.

Personal Assets, those assets that do not have a title (artwork, furniture, personal belongings), can generally be passed by way of Living Trust if they are listed on the Living Trust Schedule A.

There are many ways a trust can be structured based on your individual circumstances, including designation of a family member or bank as the successor trustee to wind up the estate.

If you are setting up a trust, the My People section of Legacy Guide can be helpful in providing the estate planner with proper directions.

When using a Living Trust as your primary estate document, all titled assets, not passing by contract, should be titled in the name of the trust. Typically you will want your Living Trust to be accompanied by a Pour Over Will that directs all assets to the Living Trust for the Trustee to control and distribute.

Care should be taken to avoid the probate process.

Transfer by Probate

Probate is a court directed process that resolves how your estate will be settled. If you created a Will, that document will direct the court and your Executor to whom assets should be distributed. If you have no valid will or living trust, the probate process is still followed although the court will decide how your assets are distributed based on the state’s rules. Because there is no will, you also do not decide who your Executor will be. If your primary estate document is your Will, all assets not transferred by Contract should be subject to probate transfer as directed by the Will. If you have no Will or Trust, all assets not passing by Contract should be subject to Intestate rules of transfer, which are the rules adopted by your state. Your state may allow for a Memorandum of Personal Assets to be attached to your Will. You may elect to have Legacy Guide create and update this document each time you add delete or change assets. A Memorandum is a useful tool to guide your executor. States the allow the Memorandum are shown in blue below:

States that Allow Memorandum of Personal Assets - in Blue

Steps to Settling an Estate through the Probate Process with a Valid Will

Notify Legacy Guide

If you are using Legacy Guide, your Executor will be able to use the system to guide them about their duties. You can designate loved ones for notifications from your Legacy Guide account, and at your direction we will contact your Settler to verify and send out notification emails to everyone you specified to receive notification. If specified, your loved ones will also receive a copy of your Life Story as well as your Personal Letter to them, if you have entered one.

If you are not using Legacy Guide you need to set up some way to let family members know how to handle final arrangements.

Once final arrangements have been taken care of, it is now time for your Settler to begin the settlement process, outlined below.

Locate an Original Copy of the Will

Legacy Guide provides on-line storage of your documents, with an area to specify the location of the original that directs the Executor to the Will.

If you don’t use Legacy Guide, you should make sure that the location of a Will is known.

Open the Estate with the Probate Court

The Executor will need to locate the probate court for the deceased’s area. An internet search or call to the county clerk’s office can determine the location of the court. The Executor will take an original signed copy of the Will to the probate court clerk and it Will be filed. The court then typically schedules a short hearing that officially names the Executor as specified in the Will. The court will give the Executor a document known as Letters Testamentary. This document gives the Executor authority to act on behalf of the estate.

Prepare an Inventory of the Decedents Assets and Liabilities

The Executor must prepare an inventory of assists.

If Legacy Guide was used, this process is dramatically expedited. If properly set up, all assets and liabilities will already be entered. The Executor just needs to enter the value as of date of death and print the Inventory. It may be necessary to get appraisals for real estate assets. The inventory only includes Probate assets; assets passing by Trust or Contract are not included on the Probate Inventory.

If Legacy Guide is not being used, then preparation of the inventory is a manual process that may include trying to find, describe and value the assets.

Prepare the Decedent's Final Income Tax and Estate Tax Return

It is the executor’s responsibility to file the decedent’s final tax return up to their date of death. If estate assets are generating income during the estate settlement process a new tax identification number will also need to be obtained from the IRS for the estate and, once settled, an estate tax return will need to be filed. If the estate is valued at over the federal estate tax exemption, estate taxes will also need to be paid. Some states also collect their own estate taxes, as shown below.

States that Collect their Own Estate Taxes - in Blue

Pay the Decendent's Final Bills and Estate Expenses

Based on review of the decedent’s personal papers, and mail that has arrived, the executor can pay debts owed by the decedent. Typically, using the powers granted in the Letters Testamentary, and estate bank account will be opened on money will be transferred to this account from one of the accounts of the decedent. Any funds coming in, such as dividends and interest, should be deposited to the estate account for use in preparing the estate tax return. State laws typically require that a death notice be posted in a local newspaper so creditors the executor may not know about can come forward a submit a claim. The probate court will tell you where notice should be filed.

Distribute the Balance of the Estate to Beneficiaries

Once all of the above tasks have been completed, and sufficient time has passed for creditors to come forward, the executor will distribute the estate assets to the beneficiaries.

If Legacy Guide was used, there will be a list of assets with details on how to transfer title of assets; who to contact; what documentation is needed, etc. which takes much of the frustration out of the distribution process. For every asset, Legacy Guide allows you to enter a note explaining why the assets is important to you and why you are leaving it to the person you have specified.

If Legacy Guide is not used, care needs to be taken to ensure that Wills are clear. Many Wills are very vague, saying something like “After all expenses of my estate have been paid the balance of my estate should be distributed equally to my two daughters, Jane Smith and June Smith”. This does not address what happens to personal items like furnishings, artwork and other non-titled assets.

Prepare and Submit Final Accounting

Once all liabilities have be paid and assets distributed, the Executor will prepare a final accounting that will be filed with the probate court.

Intestate Probate

If no Will can be located the probate process is referred to as Intestate Probate. A court appointed executor will follow procedures that are similar to those described above.

Probate May Not be Required

If there are no probate assets, meaning all assets were held in trust of passed by beneficiary designation, no probate needs to be opened. Also, if the probate estate is below a certain level, most states allow for a streamlined estate settlement process. To see if the streamlined estate process is available in your state, refer to NOLO’s Avoiding Probate in Your State page on their website.

Steps to Settling an Estate Using a Living Trust

Notify Legacy Guide

If you are using Legacy Guide, your Successor Trust will be aware of his or her’s duties.

Steps to Trust Settlement

The steps in settling an estate controlled by a Living Trust are similar to those used to settle a Probate Estate. The Major difference is that nothing has to be filed with the court and the distribution of the trust is controlled by instructions in the trust document, not the court.

The trustee should:

Prepare a Trust Inventory The Inventory will include all assets titled in the name of the trust and all personal assets listed on the Living Trust Schedule A. If a Schedule A cannot be located, the trust my make reference to personal assets and how they should be distributed. Assets passing by Probate or Contract should not be included in the Inventory.

Distribute the Assets as Directed by the Trust There are many ways that trust assets can be directed to be distributed, the Successor Trustee should follow the instructions.

Prepare a Final Accounting While an accounting is not required to be filed, the Successor Trustee should still prepare the final accounting and provide a copy to the trust beneficiaries.

Legacy Guide works in concert with the estate planning documents you have, or will have, prepared so there is no confusion in the process. Everything is in one place – there is no need for your settler to scour through your files or safety deposit box to locate documents and to determine the value of your estate. The Estate Balance Sheet will list all of your assets and their values (some subject to appraisal adjustment) which eliminates one of the most tedious aspects of estate settlement – preparing the estate inventory. Legacy Guide makes it easy to get started. You can start a free 30 trail of Legacy Guide to see just how convenient it is.

Glossary of Estate Planning Terms

An individual who receives the benefit from an estate, trust, retirement account, life insurance policy, or account with a transfer on death (TOD) designation.

Closing Letter
A letter sent by the IRS to the executor of an estate to indicate that the estate’s tax return is satisfactory. The executor files it with probate court. Depending on the state, a closing letter from the state may also need to be filled.

Durable Power of Attorney
The authority granted to another person, by a signed document by the person or a by a court order, to make certain decisions on that person’s behalf. Unless the authority is revoked before the person becomes incapacitated, it extends to the end of natural life.

The person named in a will who is responsible for managing the decedent’s estate (also known as a Personal Representative or Executrix).

With respect to trusts, the person who creates the trust using his or her own assets (also known as a Donar).

Health Care Proxy
A type of Power of Attorney that gives the designated individual decision making power over a persons medical affairs. It may include Living Will provisions, as well (also known as a Durable Power of Attorney for Health Care).

An individual who is eligible to inherit the assets of someone who died without a will; also commonly used to describe any beneficiary or inheritor (also know as Heir at Law).

Heir at Law
An individual who is eligible to inherit the assets of someone who passed without a will. Heirs in Law are determined by state intestacy laws of the the state of the deceased’s primary residence.

This describes the death of an individual with no will. All property and assets that would otherwise be governed by a will are passed to beneficiaries according to state intestacy laws.

Joint Ownership with Right of Survivorship
An asset ownership arrangement in which two or more individuals own the whole of an asset equally. When one owner passes away the asset passes to the other joint owner or owners.

Per Capita
A method of distributing assets so that each child receives the same proportion of the total assets. If one child passes away prematurely, the assets are then distributed to the remaining children.

Per Stirpes
A method of distributing estate assets so that each branch of the family (child and his or her descendants) receives the same portion of the total assets, regardless of how many members each branch has.

Power of Attorney (POA)
The authority granted to a person to make certain decisions on another person’s behalf. POA authority ends when the person granting the authority revokes the authority, becomes incapacitated, or dies. A Durable POA extends authority past the point of incapacity to the end of natural life.

The legal process of settling an estate during with the validity of the will is proven. The deceased’s assets are collected and accounted for and debts and taxes are paid. The remaining assets are then distributed based on instructions in the will.

Rules of Succession
A state’s intestacy laws that determine which survivor(s) inherit the estate of a person who passed away without a will.

Statutory Notice
A notification, usually in a local newspaper, that is legally required to be made, usually within a specified period of time, that a person has passed away. Not required if none of the person’s estate will be settled through the probate process.

Successor Trustee
An individual named in a trust who will assume the role of trustee should the originally appointed trustee be unwilling or unable to assume or continue to assume the role. For living trusts, the Successor Trustee is the individual named in the trust to succeed as trustee at the owner’s death.

Taxable Estate
The fair market value of all assets owned by the deceased, minus funeral expenses, debts owned by the deceased, and assets passed to a surviving spouse.

Transfer on Death
A provision of a brokerage account, bank account, and, in some states, on the deed or title of an asset that allows the asset to pass directly to an intended beneficiary without going through probate. It is the equivalent of a Beneficiary Designation on a financial account such as and IRA or Annuity.

The person or institution that is the legal owner of a trust. The trustee is responsible for managing the assets placed into the trust.

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